[This Week's Industry & Market] Tobis, 'Car Display' Rapidly Growing... Expanding Global Supply

Entered the automotive display business since 2018
Expanded overseas suppliers including Continental and Stellantis
Continued double-digit sales growth expected with facility expansion
Increased debt burden due to successive investments
'Investment → Cash flow improvement' virtuous cycle structure

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the online environment flooded with unrefined information, Asia Economy aims to be your hands and feet, eyes and ears, delivering accurate information about companies. Each week, we focus on companies that rank high in stock inquiries from the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, customers, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We come to you every week under the name "This Week's Watchlist," highlighting stocks of interest.

Tobis is a company that manufactures displays for casinos and automotive electronics, supplying to finished car manufacturers and hotel casinos. With stable demand for casino displays, the company has recently been steadily increasing its supply of automotive displays, leading to a sharp rise in performance.

Buoyed by improved performance prospects, the stock price has also risen significantly. The stock price, which remained in the 6,000 KRW range until 2021, rose to around 24,000 KRW recently as supply of automotive displays increased following domestic and overseas facility expansions. Securities industry analysts expect Tobis's performance improvement and stock price rise to continue as a trend.

Expanding Global Supply Channels with Automotive Displays

Tobis was established in 1998 by CEO Kim Yong-beom, formerly of the old Daewoo Electronics, to manufacture and sell game monitors and PC monitors. Based on the performance achieved by supplying various monitors, the company was listed on KOSDAQ in November 2004. Subsequently, with the mobile phone boom, it mainly produced small displays and grew steadily. Later, as demand for mobile phone displays sharply declined, the company shifted its portfolio to casino displays and automotive displays.

Since 2018, Tobis has been preparing for the automotive display business and began releasing products. Two years later, in 2020, it formed a strategic partnership with LG Display for the automotive display business. In the same year, it secured Hyundai Mobis, a parts subsidiary of Hyundai Motor Group, as a customer, laying the foundation for growth in the automotive display sector.

In 2021, the following year, Tobis established a dedicated production line for automotive displays at its Dalian, China factory and began mass production. Along with capacity expansion, it secured Denso Korea, a Japanese company, as a customer. Last year, to meet surging demand, it completed a factory in Seocheon, Chungnam, entering domestic mass production. It also acquired management rights of Glocordtech, an electric vehicle communication solutions company, enhancing its technology in the automotive sector.

Tobis is evaluated to have perfectly succeeded in restructuring its portfolio by strengthening its casino and automotive display businesses. As of 2018, mobile phone display sales accounted for 68% of total sales. Casino display sales accounted for about 32%, and automotive display sales were nonexistent.

Recently, the proportion of automotive displays has significantly increased. As of the first quarter of this year, automotive display sales accounted for 53.2%, exceeding half of consolidated sales. Mobile phone display sales shrank to 1.7% of total sales. Sales of casino-specific products also increased to 45.1%.

An industry insider said, "Tobis has laid the foundation for a resurgence by shifting its portfolio toward automotive displays," adding, "Recently, sales to global customers such as Hyundai Mobis and LG Display, as well as global automotive parts companies like Denso and Continental, have also increased."

Continuous Expansion Amid Surging Orders... Significant Performance Improvement Expected

Tobis's performance is rapidly improving due to expansion in the automotive business segment.

Sales, which were around 260 billion KRW in 2021, increased to about 450 billion KRW last year. Operating profit turned from a loss to a profit in 2021 and rose to 23.7 billion KRW last year. Notably, the pace of recent performance growth is accelerating. First-quarter sales this year were 139.2 billion KRW, up 59% from 87.8 billion KRW in the same period last year. Operating profit also increased from 4.4 billion KRW to 11.9 billion KRW.

Securities analysts forecast Tobis's sales to reach the 600 billion KRW range this year, an increase of more than 50% compared to last year. Operating profit is expected to exceed 50 billion KRW this year, more than doubling from last year.

As orders for automotive displays increase, the scope of future performance improvement is expected to continue steepening. In May, Tobis secured Continental, a global automotive parts company, as a customer. Recently, it also agreed to supply displays to Stellantis, one of the US Big Three automakers.

NH Investment & Securities researcher Shim Eui-seop explained, "Sales to Stellantis are expected to start from the end of this year," adding, "For Continental, sales are expected to begin in the second half of next year."

With increasing orders, additional expansions are also underway. From the end of this year, the third production line for Stellantis will be operated on the first floor of the Seocheon factory. In the first half of this year, additional expansion on the second floor is planned, increasing production capacity (CAPA) from the existing 500 billion KRW to 650 billion KRW.

Shinhan Investment Corp. researcher Lee Byung-hwa forecasted, "Tobis's automotive segment sales will easily exceed 300 billion KRW this year," adding, "As the number of customers continues to increase, the automotive display segment will show double-digit sales growth annually."

Rising Borrowings Due to Continuous Expansion... Financial Virtuous Cycle

Borrowings have increased due to expansion investments. Borrowings, which were around 50 billion KRW in 2020, rose to 190 billion KRW by the end of the first quarter this year due to equipment investments at the Dalian, China, and Seocheon, Chungnam factories. Net borrowings, excluding cash equivalents averaging around 40 billion KRW, increased from 10 billion KRW to 140 billion KRW during the same period.

However, the increased borrowings are not considered burdensome. It is analyzed that they are manageable due to improved cash flow. Tobis generated EBITDA in the 40 billion KRW range last year and is expected to record over 50 billion KRW EBITDA this year.

A credit rating agency official analyzed, "Stable cash flow is expected to enable control of borrowings," adding, "Even after deducting depreciation expenses of around 5 billion KRW annually, the company is realizing stable levels of profit." The official evaluated, "Thanks to business prosperity, the company is in a financial virtuous cycle structure of 'large-scale investment → cash flow improvement → financial buffer securing.'"

Low Owner Shareholding... Somewhat Weak Governance

The governance is considered somewhat weak due to low owner (proprietor) shareholding. The largest shareholder is CEO Kim Yong-beom and his family and related parties, holding 15.09% of shares. Financial investor Korea Investment Value Asset Management holds 5.00% of shares.

To compensate for weak governance, Tobis has purchased and holds 6.11% of treasury shares. The remaining shares are dispersed among employee stock ownership associations (2.82%) and individual investors.

An investment banking industry insider said, "The ownership structure suggests that the controlling power of the major shareholder is somewhat low," but added, "Considering that the major shareholder directly participates in management as CEO and has secured unique technology and a stable supply chain, the possibility of external threats to management rights is low."